Lebanon's battered economy dealt fresh blow after port blast hits 'Achilles heel'
Suleiman Al-Khalidi,
Reuters•August 7, 2020
FILE PHOTO: Aftermath of Tuesday's blast in Beirut's port area, LebanonMore
By Suleiman Al-Khalidi
AMMAN (Reuters) - Lebanon's economy, already sinking before the explosion that knocked out its main port, could now shrink by double the rate previously forecast for this year, making it even harder to secure the financing the country needs to get back on its feet.
Economists say Tuesday's blast, which also damaged large parts of commercial Beirut, could lead to a GDP contraction of around 20-25% this year - far beyond the IMF's recent forecast for a 12% decline due to a deepening economic and political crisis.
Lebanese officials have estimated losses due to the blast, which killed 150 people, left thousands injured and rendered tens of thousands homeless, could run into billions of dollars.
A financial crisis had already led Lebanon to enter negotiations with the International Monetary Fund in May this year after it defaulted on its foreign currency debt, but those talks were put on hold in the absence of reforms.
Analysts say the blast highlights negligence in Lebanon's governance and puts more pressure on the government to speed up reforms in order to access aid to rebuild the economy.
While there has been an outpouring of sympathy for the country this week, there has been a notable absence of aid commitments so far, beyond urgent humanitarian aid.
"If reforms are not carried out, Lebanon will continue to sink," French President Emmanuel Macron said on Thursday as he toured the devastation in Beirut port.
Gulf states, which once helped Lebanon, meanwhile have baulked at bailing out a country where Iran-backed Hezbollah is powerful.
"It’s highly unlikely that Lebanon will be able to unlock the financing that it needs to overcome its fundamental economic problems. Some partners may be reluctant to provide support given the influential role of Iran-backed Hezbollah in the Lebanese government," said Jason Tuvey, senior emerging markets economist Capital Economics.
Lebanon's financial crisis came to a head last October as capital inflows slowed down and protests erupted over corruption and bad governance, with a hard currency liquidity crunch leading banks to impose tight curbs on cash withdrawals and transfers abroad.
The blast has put renewed pressure on the Lebanese pound, which was trading at around 8,300 per dollar on the black market after the explosion, against a level of 8,000 beforehand, dealers say.
Economists predict more erosion in the purchasing power of the pound, which has lost nearly 80% of its value since October with skyrocketing inflation topping 56%, accentuating social tensions.
The most urgent reforms that need to be implemented to restart talks with the IMF include tackling a runaway budget, mounting debt and endemic corruption, economists say.
"We think the explosion could delay the reform process as the government tries to deflect blame, eating up the political capital necessary for difficult but urgently needed reforms," said Patrick Curran, senior economist at Tellimer, a UK based research firm.
Businessmen and economists say the port - one of the biggest in the eastern Mediterranean and where over 40% of transshipments went to Syria and the Middle East region - has already lost revenues and business since the blast to other rival ports as shipping lines divert transit cargo.
"The port turned out to be (Lebanon's) weakness," said Jawad Anani, a regional economic consultant and former Jordanian minister. "There was so much dependence on it, so when it was demolished it turned out to be their Achilles heel."
David Sabella, who opened an Italian restaurant and bar, ‘Spicy No7', 18 months ago in Gemmayze close to the port area, saw them both destroyed by the blast.
"The government should have some mercy on us. I have nothing now," he said.
Rising political tensions since the explosion will only make things worse and complicate efforts to speed reforms, pushing the country into uncharted territory.
"It's a bleak outlook with infighting among a political class that lacks consensus on a way out and is unwilling to swallow the bitter pill," said Kamal Hamdan, director of Beirut-based Consultation and Research Institute (CRI).
(Reporting by Suleiman Al-Khalidi Additional reporting by Tom Arnold; Editing by Susan Fenton)
The Beirut explosion was six years in the making and hit a country on its kneesSuleiman Al-Khalidi,
Reuters•August 7, 2020
FILE PHOTO: Aftermath of Tuesday's blast in Beirut's port area, LebanonMore
By Suleiman Al-Khalidi
AMMAN (Reuters) - Lebanon's economy, already sinking before the explosion that knocked out its main port, could now shrink by double the rate previously forecast for this year, making it even harder to secure the financing the country needs to get back on its feet.
Economists say Tuesday's blast, which also damaged large parts of commercial Beirut, could lead to a GDP contraction of around 20-25% this year - far beyond the IMF's recent forecast for a 12% decline due to a deepening economic and political crisis.
Lebanese officials have estimated losses due to the blast, which killed 150 people, left thousands injured and rendered tens of thousands homeless, could run into billions of dollars.
A financial crisis had already led Lebanon to enter negotiations with the International Monetary Fund in May this year after it defaulted on its foreign currency debt, but those talks were put on hold in the absence of reforms.
Analysts say the blast highlights negligence in Lebanon's governance and puts more pressure on the government to speed up reforms in order to access aid to rebuild the economy.
While there has been an outpouring of sympathy for the country this week, there has been a notable absence of aid commitments so far, beyond urgent humanitarian aid.
"If reforms are not carried out, Lebanon will continue to sink," French President Emmanuel Macron said on Thursday as he toured the devastation in Beirut port.
Gulf states, which once helped Lebanon, meanwhile have baulked at bailing out a country where Iran-backed Hezbollah is powerful.
"It’s highly unlikely that Lebanon will be able to unlock the financing that it needs to overcome its fundamental economic problems. Some partners may be reluctant to provide support given the influential role of Iran-backed Hezbollah in the Lebanese government," said Jason Tuvey, senior emerging markets economist Capital Economics.
Lebanon's financial crisis came to a head last October as capital inflows slowed down and protests erupted over corruption and bad governance, with a hard currency liquidity crunch leading banks to impose tight curbs on cash withdrawals and transfers abroad.
The blast has put renewed pressure on the Lebanese pound, which was trading at around 8,300 per dollar on the black market after the explosion, against a level of 8,000 beforehand, dealers say.
Economists predict more erosion in the purchasing power of the pound, which has lost nearly 80% of its value since October with skyrocketing inflation topping 56%, accentuating social tensions.
The most urgent reforms that need to be implemented to restart talks with the IMF include tackling a runaway budget, mounting debt and endemic corruption, economists say.
"We think the explosion could delay the reform process as the government tries to deflect blame, eating up the political capital necessary for difficult but urgently needed reforms," said Patrick Curran, senior economist at Tellimer, a UK based research firm.
Businessmen and economists say the port - one of the biggest in the eastern Mediterranean and where over 40% of transshipments went to Syria and the Middle East region - has already lost revenues and business since the blast to other rival ports as shipping lines divert transit cargo.
"The port turned out to be (Lebanon's) weakness," said Jawad Anani, a regional economic consultant and former Jordanian minister. "There was so much dependence on it, so when it was demolished it turned out to be their Achilles heel."
David Sabella, who opened an Italian restaurant and bar, ‘Spicy No7', 18 months ago in Gemmayze close to the port area, saw them both destroyed by the blast.
"The government should have some mercy on us. I have nothing now," he said.
Rising political tensions since the explosion will only make things worse and complicate efforts to speed reforms, pushing the country into uncharted territory.
"It's a bleak outlook with infighting among a political class that lacks consensus on a way out and is unwilling to swallow the bitter pill," said Kamal Hamdan, director of Beirut-based Consultation and Research Institute (CRI).
(Reporting by Suleiman Al-Khalidi Additional reporting by Tom Arnold; Editing by Susan Fenton)
Alexander Smith and Matthew Bodner and Charlene Gubash and Mustafa Kassem,
NBC News•August 6, 2020
The explosion that gouged a crater in Beirut's portside and sent a devastating shockwave through the city would have been a catastrophe for any country.
But it was especially cruel timing for Lebanon — where it killed at least 135 people, injuring more than 4,000 and making another 250,000 homeless. It came right when the country is already buckling under a stack of economic, political and healthcare crises.
The city is no stranger to conflict. On social media people shared photos of the red mushroom cloud hanging over the city following Tuesday's blast, alongside eerily similar images from the country's civil war 1975-1990 and the 2006 conflict between Hezbollah and Israel.
But all the early evidence suggests it was not an attack — despite the unsubstantiated comments by President Donald Trump and numerous conspiracy theorists online. Rather it appears to be a disaster caused or at least enabled by the very forces of negligence and perhaps even corruption that have been responsible for bringing the country to its knees.
Image: Smoke rises after an explosion in Beirut (Social media via Reuters)
The explosion was triggered when a warehouse fire ignited 2,750 tons of ammonium nitrate, a chemical used in fertilizer and bombs, according to Lebanese Prime Minister Hassan Diab.
He said the stockpile had been stored at the port for six years without any "preventive measures" to protect it. Other officials said they have tried to sound the alarm about this deadly chemical being quietly stored in the heart of a city of more than 2 million people.
The head of Beirut port and the head of customs both said Wednesday that several letters were sent to the judiciary asking for the dangerous material be removed, but no action was taken.
"We requested that it be re-exported but that did not happen," Badri Daher, director general of Lebanese Customs, told broadcaster LBCI. "We leave it to the experts and those concerned to determine why.
NBC News attempted to contact Albert Serhan, Lebanon's former justice minister until, to ask him about the allegatins but did not get a response.
‘The ship couldn’t take it’
The ammonium nitrate arrived in fall 2013 on a Russian-owned cargo ship, the Rhosus, the ship's then-captain, Boris Prokoshev, told NBC News. It was en route from the Georgian Black Sea port of Batumi to Mozambique where it was to be used as fertilizer, he said.
It stopped off in Beirut but was impounded for safety reasons because it was overloaded and listing, Prokoshev said.
"The ship couldn't take it," he said.
The ship's Russian owner, Igor Grechushkin, abandoned the ship, refusing to pay docking fees, fines, and even salaries and food for the crew, according to the captain and Natalia Sokolova, a representative for the Seafarers Union of Russia, which represented the crew during its dispute with the owner at the time.
NBC News tried but was not able to reach Grechushkin for comment.
Image: The cargo ship Rhosus (Hasenpusch/dpa via AP)
Authorities in Beirut kept the crew aboard for 11 months to tend to the cargo, according to the captain, who said they felt "trapped" on board, and the labor union representative Sokolova.
"The Beirut port authority would not give them permission to abandon a ship carrying this type of cargo," Sokolova said. "In the end, a court seized the vessel to sell it as a means to pay off the ship owner's debts, and a port agent found locals to unload the cargo and the crew went home."
Beirut Governor Marwan Abboud backed up this account, telling the country's LBCI television station that the chemical was kept in the port under "judicial order" and that "there was nobody who took the responsibility to make a decision to remove it."
'Incomprehensible'
Various Lebanese leaders have promised to bring those responsible to justice.
The presidency tweeted that anyone who "managed the affairs" of the chemical, guarded it or "examined its file" since June 2014 would be put under house arrest. Diab, the prime minister, said that he "will not rest until we find the person responsible for what happened."
But many residents and commentators see the disaster as symptomatic if not directly caused by the general state of upheaval into which the country has slid.
It is currently suffering its worst economic crisis in its modern history, with prices, unemployment and hunger skyrocketing and its currency, the lira, plummeting.
Anti-government protests in recent months have called for a change to what they see as decades of corrupt leadership, with sectarian politics and patronage networks enriching the elite and creating grave inequality. Hezbollah, an Iranian proxy officially designated a terrorist organization by the U.S., is a political group with unrivaled influence in the government.
The explosion was triggered when a warehouse fire ignited 2,750 tons of ammonium nitrate, a chemical used in fertilizer and bombs, according to Lebanese Prime Minister Hassan Diab.
He said the stockpile had been stored at the port for six years without any "preventive measures" to protect it. Other officials said they have tried to sound the alarm about this deadly chemical being quietly stored in the heart of a city of more than 2 million people.
The head of Beirut port and the head of customs both said Wednesday that several letters were sent to the judiciary asking for the dangerous material be removed, but no action was taken.
"We requested that it be re-exported but that did not happen," Badri Daher, director general of Lebanese Customs, told broadcaster LBCI. "We leave it to the experts and those concerned to determine why.
NBC News attempted to contact Albert Serhan, Lebanon's former justice minister until, to ask him about the allegatins but did not get a response.
‘The ship couldn’t take it’
The ammonium nitrate arrived in fall 2013 on a Russian-owned cargo ship, the Rhosus, the ship's then-captain, Boris Prokoshev, told NBC News. It was en route from the Georgian Black Sea port of Batumi to Mozambique where it was to be used as fertilizer, he said.
It stopped off in Beirut but was impounded for safety reasons because it was overloaded and listing, Prokoshev said.
"The ship couldn't take it," he said.
The ship's Russian owner, Igor Grechushkin, abandoned the ship, refusing to pay docking fees, fines, and even salaries and food for the crew, according to the captain and Natalia Sokolova, a representative for the Seafarers Union of Russia, which represented the crew during its dispute with the owner at the time.
NBC News tried but was not able to reach Grechushkin for comment.
Image: The cargo ship Rhosus (Hasenpusch/dpa via AP)
Authorities in Beirut kept the crew aboard for 11 months to tend to the cargo, according to the captain, who said they felt "trapped" on board, and the labor union representative Sokolova.
"The Beirut port authority would not give them permission to abandon a ship carrying this type of cargo," Sokolova said. "In the end, a court seized the vessel to sell it as a means to pay off the ship owner's debts, and a port agent found locals to unload the cargo and the crew went home."
Beirut Governor Marwan Abboud backed up this account, telling the country's LBCI television station that the chemical was kept in the port under "judicial order" and that "there was nobody who took the responsibility to make a decision to remove it."
'Incomprehensible'
Various Lebanese leaders have promised to bring those responsible to justice.
The presidency tweeted that anyone who "managed the affairs" of the chemical, guarded it or "examined its file" since June 2014 would be put under house arrest. Diab, the prime minister, said that he "will not rest until we find the person responsible for what happened."
But many residents and commentators see the disaster as symptomatic if not directly caused by the general state of upheaval into which the country has slid.
It is currently suffering its worst economic crisis in its modern history, with prices, unemployment and hunger skyrocketing and its currency, the lira, plummeting.
Anti-government protests in recent months have called for a change to what they see as decades of corrupt leadership, with sectarian politics and patronage networks enriching the elite and creating grave inequality. Hezbollah, an Iranian proxy officially designated a terrorist organization by the U.S., is a political group with unrivaled influence in the government.
Image: Police scuffle with protesters in Beirut (Hassan Ammar / AP)
The country was already struggling to cope with the 1.5 million refugees who have fled there from the war in neighboring Syria. These displaced people now make up 30 percent of its population — the highest proportion in the world.
Add to this the coronavirus pandemic, which has shuttered businesses, left thousands unemployed and threatens to overwhelm the country's beleaguered health system.
Tuesday's explosion ripped through a city on its knees. Not only has it wrought widespread damage, it has cripped the country's main port and immolated a month of grain reserves.
Human rights groups were among those to call for an international team to lead the inquiry into how this could have happened.
"The level of devastation in Beirut is incomprehensible, and the responsible authorities should be held accountable," Aya Majzoub, Lebanon researcher at Human Rights Watch, said in a statement.
"Given the Lebanese authorities’ repeated failure to investigate serious government failings and the public’s distrust of government institutions," Majzoub added, "an independent investigation with international experts is the best guarantee that victims of the explosion will get the justice they deserve."
Alexander Smith reported from London, Matthew Bodner reported from Moscow, Charlene Gubash reported from Cairo and Mustafa Kassem reported from Beirut. Reuters contributed to this report.
The country was already struggling to cope with the 1.5 million refugees who have fled there from the war in neighboring Syria. These displaced people now make up 30 percent of its population — the highest proportion in the world.
Add to this the coronavirus pandemic, which has shuttered businesses, left thousands unemployed and threatens to overwhelm the country's beleaguered health system.
Tuesday's explosion ripped through a city on its knees. Not only has it wrought widespread damage, it has cripped the country's main port and immolated a month of grain reserves.
Human rights groups were among those to call for an international team to lead the inquiry into how this could have happened.
"The level of devastation in Beirut is incomprehensible, and the responsible authorities should be held accountable," Aya Majzoub, Lebanon researcher at Human Rights Watch, said in a statement.
"Given the Lebanese authorities’ repeated failure to investigate serious government failings and the public’s distrust of government institutions," Majzoub added, "an independent investigation with international experts is the best guarantee that victims of the explosion will get the justice they deserve."
Alexander Smith reported from London, Matthew Bodner reported from Moscow, Charlene Gubash reported from Cairo and Mustafa Kassem reported from Beirut. Reuters contributed to this report.
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